The Daily Dish 1.30.13
Reuters reports that disturbing data yesterday showed "U.S. consumer confidence dropped in January to its lowest level in more than a year as Americans were more pessimistic about the economic outlook and their financial prospects." Meanwhile, counter to what the likes of Paul Krugman has been saying, CNBC notes that "Wall Street is sending a sharp and unambiguous message to Washington: cut spending and solve the deficit problem now and don't do it with more revenue."
Spending, the deficit, the debt, growth, and job creation are all interconnected. Too much spending leads to a deficit, which ultimately adds to the debt, which slows growth and hinders job creation (just ask Reinhart and Rogoff). This morning, two more important data releases on growth and job creation are expected show an economy that is moving sideways. The ADP employment report will be released at 8:15 AM and GDP estimates are out at 8:30 AM.
Reuters predicts that "hiring by employers likely held steady in January, pointing to modest growth in the economy despite worries that budget battles in Washington could derail the recovery." They add that "many economists think companies would create more jobs if Washington could resolve a seemingly intractable fight over how to tame the federal deficit." It's more likely that they would create more jobs if Washington actually tamed the federal deficit.
Separately, Reuters anticipates "the U.S. economy likely grew at its slowest pace in nearly two years in the fourth quarter…Gross domestic product probably expanded at 1.1 percent annual rate, braking sharply from a 3.1 percent clip in the third quarter, according to a Reuters poll of economists." Smaller deficits and lower debt would no doubt lead to stronger growth and therefore more robust job creation.
Doug's Daily Economic Outlook
Immigration reform is in the headlines, which are dominated by the challenge of policy toward undocumented immigrants and the political ramifications of reform itself. The former is unquestionably an important issue, whose resolution requires a thoughtful, forward-looking strategy imbued with the remembrance that, as Clarence Darrow put it, mercy is the highest attribute of man. And the latter is good fodder for Washington pundits, who can bloviate among themselves while the real work gets down.
And the real work is riddled with important economic issues. The large body of undocumented immigrants is in large part a legacy of economic conditions, and an immigration system unequipped to handle the shifting demand for various skills in the U.S. economy. Immigration reform must move the system to an economic foundation. The core visa granting system must be built on the recognition that the U.S. must compete aggressively in the global economy, and a skill-based immigration system is part of building a modern labor force. It must recognize that "demography is destiny" and that the U.S. native-born population has a fertility rate too low to sustain population growth. Without immigration, the population shrinks and top-line growth withers (Exhibit A in this regard is the failing Japanese economy).
Around the core visa system will be needed a temporary visa system flexible enough to handle seasonal agriculture demands, business-cycle fluctuations, and sectoral shifts exemplified by the shortages in Silicon Valley and elsewhere. Quietly, this may be more critical to immigration reform than the undocumented. In 2007, efforts at reform foundered on the inclusion of a guest worker program strongly opposed by union forces, and little has changed since that time. If the president genuinely wishes to get immigration reform across the finish line he must cease to be a pawn to union desires.
America is a land of immigrants. America is the greatest economy the globe has ever witnessed. It is time join these two points of national pride in an explicit strategy for the 21st century.
What We're Reading
Deep spending cuts are likely, lawmakers say, with no deal on sequester in sight -- Less than a month after averting one fiscal cliff, Washington began bracing Tuesday for another, as lawmakers in both parties predicted that deep, across-the-board spending cuts would probably hit the Pentagon and other federal agencies on March 1. An array of proposals are in the works to delay or replace the cuts. (WaPo)
Fed Risks Losses From Bonds -- The Federal Reserve could be charting a course that leaves the highly profitable central bank with no extra income to hand over to the U.S. Treasury for several years. That is the conclusion of five Fed staff economists who examined how the central bank's bond-buying programs will affect its profitability over the long run. (WSJ)
To Open Eyes, W-2s List Cost of Providing a Health Plan -- As workers open their W-2 forms this month, many will see a new box with information on the total cost of employer-sponsored health insurance coverage. To some, it will be a surprise, perhaps even a shock. Workers often have little idea how much they and their employers are paying for coverage. In many cases, economists say, workers give up cash compensation to get and keep health benefits. (NY Times)
Treasury Department Prepares New Refinance Push -- A top Obama administration housing official said the administration would renew its push to expand refinancing options for underwater homeowners during a speed at an industry and investor conference in Las Vegas on Tuesday. Michael Stegman, a senior housing adviser at the Treasury Department, said that the administration would reintroduce legislation to make those changes but that it would also implement them administratively if Congress didn't get on board. (WSJ)
In Energy Taxes, Tools to Help Tackle Climate Change -- The erratic weather across the country in the last couple of years seems to be softening Americans' skepticism about global warming. Most New Yorkers say they believe big storms like Sandy and Irene were the result of a warming climate. Whether climate change is directly responsible or not, the odd weather patterns have underscored the risk that it poses to all of us. (NY Times)
Also From the Forum
When a Recess Appointment is Not a Recess Appointment -- In Noel Canning V. NLRB, a unanimous three-judge court found that President Obama's purported "recess appointments" to the National Labor Relations Board were "constitutionally invalid." While the substance of the case is relatively minor, the broader implications of this decision are profound. The Federal Register contains 22 entries from NLRB since the President made these appointments, to say nothing of the countless decisions the Board reached and published itself. All of these are now theoretically invalid for want of a true quorum. (Blog here)